Cryptocurrency - a way out of Russian isolation

As the Russian aggression against Ukraine continues, USA and its European allies have been ramping up their sanctions on the Russian economy.

To force the Kremlin stop the war, these packages go beyond just sanctioning government operatives and oligarchs and are designed to cut-off the whole Russian population from the international financial system.

As the financial reality of most Russians is toughening daily, what are the chances of them using Cryptocurrency as the way out of this isolation?

After its invasion of Ukraine, Russia has been sanctioned by the majority of the international community. The aim of economic sanctions is to cut off the country from the global financial system to cause it to end the war and withdraw its military forces from Ukraine. The said sanctions involve removing SWIFT (interbank messaging system) access from Russian banks, prohibiting corporations from doing business with Russian figures and FI-s from the U.S. Sanctions list, etc.

Needless to say, the sanctions have caused the Ruble to plunge, most large multinational corporations have left the country,  and now the Russian business community is scrambling to keep themselves afloat in the financial world.

Based on these circumstances, many fear that Russians (especially the ones with significant resources) can use crypto as an escape route, , since it is not issued or controlled by a central bank entity.

According to Jesse Powell, CEO and co-founder of Kraken, they are not willing to halt crypto exchange for Russians, unless legally required to do so. The company is making sure that the sanctioned individuals don't fall through the cracks relying on the ultimate shield - screening policy of people who sign up for their services. Using global watchlists, transactions and users, from IP addresses that may belong to sanctioned individuals or entities, are blocked and barred from access to crypto exchange. 'cutting out a whole country, people, who may not be supporting the invasion, is not what our company stands for. We take cutting out people from, possibly, their last financial account very seriously. ', - states Kraken.

As the latest news goes, another big crypto exchange company, Coinbase will block 25 000 Crypto addresses, that are connected to the Russians or Russian organizations. After Russia's invasion of Ukraine, Coinbase has investigated addresses that directly or indirectly were akin to sanctioned Russian individuals or entities. As the representative of Coinbase has expressed 'sanctions and their fulfilment are crucial in preventing the aggressor, our company fully supports this decision of our government'.

As per US officials, they are unanimous about the idea of cryptocurrency not being a powerful escape route for the Russian state of sanctioned individuals. The main reason behind that is that Russia is a huge country with a $1.5 trillion GDP, frankly, there just aren't enough dollars in the crypto trading system to meet the needs of a country of Russia's size. Making it implausible that the Russian Federation could evade sanctions using crypto at the scale that would be needed unnoticed.

Though the idea and the fundamentals of Crypto - being decentralized and under no scrutiny of government entities - remains a dilemma. Washington, according to Crypto analysts and leaders, 'doesn't understand how heavily regulated and traceable Crypto already is' and additional centralization could create unnecessary obstacles. Yet, crypto companies assert that all sanctions will be fully met to whom they are imposed on.

To be more realistic, Coinbase and Kraken are one of the largest Crypto exchange companies and it would be easier for them, given their resources, to respond to sanctions accordingly. So, how shall small, new crypto startups operate? It would be challenging for them to be compliant with the imposed sanctions on Russia, all while concentrating their energy on ensuring not only AML, but also consumer protection, investor protection, market integrity and other important safeguards that can and should be applied to businesses who handle funds for people.

As a relatively new startup ourselves, we fully understand the challenges that are being faced. As much as we respect the concept of cryptocurrency, crypto communities and DeFi, we also stand by our strategic allies and as our duty goes, we want to extend our support and give a 3-month-free-of-charge trial access to Crypto startups who are trying to stay compliant and act with the frame of the US and EU sanctions.

Don't hesitate to reach out to our team for more details at info@identomat.com.